Draft plantations bill on foreign ownership limit hits presidential hurdle

By Michael Taylor

JAKARTA, Sept 8 (Reuters) - Indonesia's president is against a draft bill that would retroactively limit foreign ownership of plantations to no more than 30 percent, the country's investment chief said, on concerns it may expose the government to possible legal action.

A new draft bill drawn up by members of Indonesia's parliament aims to maximise land usage, protect indigenous people and open up the sector to smaller, local players.

But the foreign ownership part - currently set at a maximum of 95 percent - has worried foreign investors and domestic plantation firms who may see asset values fall, analysts say.

Foreign plantation firms currently operating in Southeast Asia's largest economy include Singapore-listed Golden Agri-Resources and Wilmar International, Malaysia's Sime Darby Bhd and Cargill.

For the draft bill to become law, both parliamentarians and the government must reach an agreement. Both sides appear to be at odds over whether the divestment element should be made retrospective or not.

"The instruction or guidance not to include a share ownership limit within the law, is the instruction of the president," Mahendra Siregar, chairman of the Indonesian Investment Coordinating Board, told Reuters.

He said the draft bill does not contain a so-called grandfather clause, which would exempt existing foreign stakeholdings from any reduced ownership limit.

Without such a clause, the government would be vulnerable to litigation, he said.

Outgoing President Susilo Bambang Yudhoyono has introduced a series of nationalistic rules for commodity exports, including palm, cocoa and mining, in an effort to boost domestic processing industries and boost the value of its exports.

A spokesman for Yudhoyono could not be immediately reached for comment on Monday.

Parliamentarians in Indonesia have also drafted two bills that aim to limit foreign ownership in banking and insurance.

Yudhoyono, whose government is yet to make an official response to the draft plantations bill, will be succeeded by president-elect Joko "Jokowi" Widodo on Oct. 20.

If the plantation bill was not made into law before the end of current term of the house of representatives on Oct. 1, it would likely be shelved by new parliamentarians, analysts said.

"It is good news for the Malaysian planters," CIMB Research analyst Ivy Ng said about the president's objections to the divestment element of the bill.

If the bill is passed into law, the uncertain investment climate would damage Indonesia and boost the attractiveness of new frontier palm oil producers in Liberia, Nigeria and Papua New Guinea, Ng added.

Last year, Indonesia, also a major pulp and paper supplier, introduced a regulation to restrict to 100,000 hectares the plantation area of new private palm firms. (Additional reporting by Eveline Danubrata; Editing by Ryan Woo)